Europe still has a long way to go to solve its crisis, German Finance Minister Wolfgang Schaeuble was cited as saying by a magazine, noting it was key Italy did its homework and implemented promised reforms.

Schaeuble said European leaders had made an important step forward at last week's summit but it was far from the last meeting on this matter.

We still have to go a long way until we have solved all the problems, he told Spiegel magazine, in an interview to be published on Sunday. But the chance we will be successful has grown since last week.

When asked if the euro zone's bailout fund would be sufficient to potentially rescue Italy, Schaeuble said the question was irrelevant and the country must simply do its homework and implement reforms to reduce its deficit and bolster economic growth.

Italy, the euro zone's third largest economy, is again at the center of the debt crisis, as fears grow that its borrowing costs could hit levels that overwhelm the capacity of the bloc to provide support amid chronic political instability in Rome.

Italy has declared its openness to reforms, now it must implement them, Schaeuble said, noting the country needed structural reforms in the labor market and social security.

Europe functions through actions and not through everyone reassuring one another that they are good people, he said, adding that if Italy did not do its homework the financial markets would react accordingly.

Italy's Prime Minister Silvio Berlusconi last Wednesday promised European partners reforms to spur its stagnant economy and cut its towering public debt, but has failed to convince markets made skeptical by his repeated failure to deliver reforms.

LESS CONSENSUAL PATH

Schaeuble also said that while Europe preferred a voluntary haircut on Greek debt held by banks, a less consensual path was not excluded.

Euro zone leaders struck a deal with private banks and insurers on Thursday for them to accept a voluntary 50 percent loss on Greek government bonds under a plan to lower the country's debt and try to contain the two-year-old euro zone crisis.

At least nine out 10 banks are likely to accept a 50 percent discount on their Greek debt holdings, the managing director of the Institute of International Finance was quoted as saying by a German newspaper at the weekend.

Schaeuble also he would prefer to see the European Economic and Monetary Affairs Commissioner's role reinforced in order to ensure fiscal stability within the bloc, rather than create a new post for a European Finance Minister.

The European Central Bank wants the bloc to have a central body in charge of its finances, like a finance ministry, with the power to stop debts getting out of control.

But the European Commission on Thursday already promoted its top economic official Olli Rehn, giving him additional responsibilities that could lead to him becoming a Mr Euro ion charge of overseeing the single currency.

If rules are broken, he should clearly be able to give sanctions, without a commission majority being able to contradict him in this, Schaeuble said.

(Reporting By Sarah Marsh)